MACROECONOMICS
This page intentionally left blank
S E V E N T H E D I T I O N
MACROECONOMICS
N. GREGORY MANKIW
Harvard University
Worth Publishers
Senior Publishers: Catherine Woods and Craig Bleyer Senior Acquisitions Editor: Sarah Dorger
Senior Marketing Manager: Scott Guile
Consulting Editor: Paul Shensa
Senior Development Editor: Marie McHale
Development Editor: Jane Tufts
Assistant Editor, Media and Supplements: Tom Acox
Associate Managing Editor: Tracey Kuehn
Project Editor: Dana Kasowitz
Art Director: Babs Reingold
Cover and Text Designer: Kevin Kall
Production Manager: Barbara Anne Seixas
Composition: TSI Graphics
Printing and Binding: RR Donnelley
Cover art: Barbara Ellmann
WHAT’S YOUR ANGLE?
Encaustic on Wood Panel 24'' x 24'' © 2005
Library of Congress Cataloging-in-Publication Number: 2009924581
ISBN-13: 978-1-4292-1887-0
ISBN-10: 1-4292-1887-8
© 2010, 2007, 2003 by N. Gregory Mankiw
All rights reserved.
Printed in the United States of America
First Printing 2009
Worth Publishers
41 Madison Avenue
New York, NY 10010
www.worthpublishers.com
about the author
Photo by Deborah Mankiw
N. Gregory Mankiw is Professor of Economics at Harvard University. He began his study of economics at Princeton University, where he received an A.B. in 1980. After earning a Ph.D. in economics from MIT, he began teaching at Harvard in 1985 and was promoted to full professor in 1987. Today, he regularly teaches both undergraduate and graduate courses in macroeconomics. He is also author of the popular introductory textbook Principles of Economics (Cengage Learning).
Professor Mankiw is a regular participant in academic and policy debates. His research ranges across macroeconomics and includes work on price adjustment, consumer behavior, financial markets, monetary and fiscal policy, and economic growth. In addition to his duties at Harvard, he has been a research associate of the National Bureau of Economic Research, a member of the Brookings Panel on Economic Activity, and an adviser to the Federal Reserve Bank of Boston and the Congressional Budget Office. From 2003 to 2005 he was chairman of the President’s Council of Economic Advisers.
Professor Mankiw lives in Wellesley, Massachusetts, with his wife, Deborah; children, Catherine, Nicholas, and Peter; and their border terrier, Tobin.
v
To Deborah
Those branches of politics, or of the laws of social life, on which there exists a collection of facts sufficiently sifted and methodized to form the beginning of a science should be taught ex professo. Among the
chief of these is Political Economy, the sources and conditions of wealth and material prosperity for aggregate bodies of human beings. . . .
The same persons who cry down Logic will generally warn you against Political Economy. It is unfeeling, they will tell you. It recognises unpleasant facts. For my part, the most unfeeling thing I know of is the law of gravitation: it breaks the neck of the best and most amiable person without scruple, if he forgets for a single moment to give heed to it. The winds and waves too are very unfeeling. Would you advise those who go to sea to deny the winds and waves – or to make use of them, and find the means of guarding against their dangers? My advice to you is to study the great writers on Political Economy, and hold firmly by whatever in them you find true; and depend upon it that if you are not selfish or hardhearted already, Political Economy will not make you so.
John Stuart Mill, 1867
brief contents
Preface xxiii
Supplements and Media xxxii
part I
Introduction 1
Chapter 1 The Science of Macroeconomics |
3 |
Chapter 2 The Data of Macroeconomics |
17 |
part II
Classical Theory: The Economy in the Long Run 43
Chapter 3 National Income: Where It Comes From and Where It Goes 45
Chapter 4 Money and Inflation |
79 |
Chapter 5 The Open Economy |
119 |
Chapter 6 Unemployment 163 |
|
part III
Growth Theory: The Economy in the Very Long Run 189
Chapter 7 Economic Growth I: Capital
Accumulation and Population
Growth 191
Chapter 8 Economic Growth II: Technology,
Empirics, and Policy 221
part IV
Business Cycle Theory: The Economy in the Short Run 255
Chapter 9 Introduction to Economic Fluctuations 257
Chapter 10 Aggregate Demand I: Building the
IS–LM Model 287
Chapter 11 Aggregate Demand II: Applying the
IS–LM Model 311
Chapter 12 The Open Economy Revisited: The
Mundell–Fleming Model and the
Exchange-Rate Regime 339
Chapter 13 Aggregate Supply and the Short-Run
Tradeoff Between Inflation and
Unemployment 379
Chapter 14 A Dynamic Model of Aggregate Demand and Aggregate Supply 409
part V
Macroeconomic Policy Debates 443
Chapter 15 Stabilization Policy 445
Chapter 16 Government Debt and Budget
Deficits 467
part VI
More on the Microeconomics Behind Macroeconomics 493
Chapter 17 Consumption 495
Chapter 18 Investment 525
Chapter 19 Money Supply, Money Demand, and the Banking System 547
Epilogue What We Know, What We Don’t 567
Glossary 575
Index 585
viii |